Mass Medical Angels Forms to Invest in Life Sciences Startups-And Get the Ball Rolling for VCs

Richard Anders, a veteran Boston-area entrepreneur and investor, has long shown an interest in life sciences through his affiliations with the Museum of Science in Boston, the Dana-Farber Cancer Institute, the Harvard-MIT Health Sciences and Technology program, and other organizations. Along the way, he’s seen a major problem: many promising life sciences inventions never reach the market. So after spending more than a year thinking about how to solve this problem, he led the formation of an angel investment group called Mass Medical Angels (MA2).

“I had been frustrated,” says Anders, “I wondered what can we do to bring more cash and innovation into life sciences.”

Mass Medical Angels, which held its first meeting in December, is to Anders’ knowledge the only angel group in Massachusetts dedicated solely to investments in life sciences. The angel group aims to help entrepreneurs in the biotech, medical devices, and other science-related fields raise enough money to make sure that their great ideas for products don’t die on the vine. And though the challenge of raising seed money for life sciences startups predates the financial meltdown, the formation of the angel group could be extremely timely because the down economy has forced many venture firms to reduce their bets on seed-stage companies.

However, there’s a reason why there are so few angel groups focused only on life sciences. Life sciences startups, particularly those developing drugs, often need to raise huge sums of money before they reach a liquidity event such as an acquisition where investors see a return on their investments. That spooks some angel investors, who prefer to make bets on firms in the Web or software industries that require less money than life sciences startups. Yet Mass Medical Angels plans to invest in capital-efficient life sciences firms such as medical devices and healthcare IT startups, or even in fledgling biotechs that require relatively small amounts of money to do research that will lead to a larger institutional round of financing with VCs, Anders says.

Part of the strategy at Mass Medical Angels, Anders says, has been to stack its ranks of members with people who have experience in the research, clinical, regulatory, and other facets of the life sciences industry. Boston is fertile ground for finding these folks; the angel group already has members with experience at Massachusetts-based companies such as biotech powerhouse Genzyme (NASDAQ:GENZ), medical devices giant Boston Scientific (NYSE:BSX), and healthcare software firm Phase Forward (NASDAQ:PFWD). The group’s founding team includes Carl Berke and Roger Kitterman, who are also both partners at Boston-based Partners Innovation Fund, which invests in startups with technology licensed from Partners HealthCare System hospitals, and physician Pushwaz Virk.

Anders is a Harvard-trained lawyer and managing director of Brookline, MA, firm Rubin/Anders Scientific, which lines up consulting gigs for top scientists. Yet much of his background has been in software. He was founder of Jurisoft, a legal software publisher acquired in the late-1980s by Mead Data Central/LexisNexis. More recently he founded Boston angel outfit Launchpad Venture Group, which invests in multiple industries, and he was a member of another Boston angel group, Common Angels. He is also a former partner at Still River Funds in Waltham, MA. Why has he decided to focus on life sciences investments?

“In the software business it’s very tough now to figure out something that hasn’t already been done,” Anders says. “In life science there are enormous needs, tremendously bright minds, and lots of ideas.”

Mass Medical Angels plans to fund life sciences startups on the hunt for between $250,000 and, with contributions from other angel groups, as much as $3 million, Anders says. And the angel group is taking a traditional approach to making investment decisions. Potential deals are presented to members and individuals decide on their own whether they want to invest. Already, group members have invested in Sage Science, a Beverly, MA-based startup developing scientific tools to automate steps in genetics research.

The group’s exclusive focus on life sciences very much mirrors that of Life Science Angels, a West Coast angel group, which Anders pointed out has already had at least two companies provide returns on investment since the group began in 2004. A key to angel investing in life sciences is bringing in venture capitalists with deeper pockets to make follow-on investments in angel groups’ portfolio companies—to continue to build value in new drugs, devices, or diagnostics that will get the attention of a larger company that might want to acquire the technology. By this measurement, Life Science Angels appears to excel; the group says its 26 portfolio companies, in which the group has invested $19 million, have gone on to raise more than $400 million in investments from VC firms.

We’ll see if Mass Medical Angels can make this investment strategy fly in the Boston area.